Broadcom (AVGO) reported third-quarter fiscal 2023 non-GAAP earnings of $10.54 per share, beating the Zacks Consensus Estimate by 1.15% and improving 8.3% year over year.
Net revenues increased 4.9% year over year to $8.88 billion, which surpassed the Zacks Consensus Estimate by 0.22%. The year-over-year growth was driven by robust networking performance.
Top-Line Details
Semiconductor solutions revenues (79.3% of revenues) totaled $6.94 billion, up 4.8% year over year, driven by strong adoption by hyperscalers, which grew double-digits on a year-over-year basis.
Networking revenues were $2.8 billion, up 20% year on year, representing 40% of Broadcom’s semiconductor revenues. The company witnessed strong demand for its switches, routers and custom silicon AI solutions from hyperscale customers.
Broadcom Inc. Price, Consensus and EPS Surprise
Broadcom Inc. price-consensus-eps-surprise-chart | Broadcom Inc. Quote
Storage connectivity revenues were $1.1 billion, accounting for 17% of semiconductor revenues and flat year over year.
Broadband revenues climbed 1% year over year to $1.1 billion and accounted for 16% of semiconductor revenues. Wireless revenues of $1.6 billion represented 24% of semiconductor revenues and were flat year over year.
Industrial resale revenues of $236 million declined 3% year over year due to softness in China.
Infrastructure software revenues (21.8% of net revenues) increased 5.2% year over year to $1.94 billion.
Core software revenues grew 5% year over year. Consolidated renewal rates average was 119% of expiring contracts despite adverse forex. In strategic accounts, the renewal rate average was 129%.
Operating Details
Non-GAAP gross margin contracted 80 basis points (bps) on a year-over-year basis to 75.1%.
Research & development, as a percentage of net revenues, declined 150 bps on a year-over-year basis to 10.3%. SG&A expenses declined 30 bps on a year-over-year basis to 2.4%.
Adjusted EBITDA increased 7.9% year over year to $5.80 billion. The adjusted EBITDA margin expanded 180 bps on a year-over-year basis to 65.4%.
The non-GAAP operating margin expanded 90 bps on a year-over-year basis to 62.4%.
Balance Sheet & Cash Flow
As of Jul 30, 2023, cash & cash equivalents were $12.06 billion compared with $11.55 billion as of Apr 30, 2023.
Total debt (including the current portion of $1.12 billion) was $39.34 billion as of Jul 30, 2023.
Broadcom generated a cash flow from operations of $4.719 billion compared with $4.502 billion in the previous quarter. Free cash flow during the quarter was $4.60 billion compared with $4.38 billion in the prior quarter.
On Jun 30, 2023, the company paid a cash dividend of $4.60 per share of common stock, totaling $1.901 billion. In the fiscal third quarter, Broadcom spent $2.167 billion on repurchases and eliminations.
Guidance
For the fourth quarter of fiscal 2023, Broadcom anticipates revenues of $9.27 billion, suggesting 4% year-over-year growth. Semiconductor revenue growth is expected in the low-to-mid single-digit percentage range on a year-over-year basis.
Broadcom expects networking revenues to grow more than 20% year over year in fourth-quarter fiscal 2023, driven by strong generative AI, in which Broadcom expects to witness 50% growth sequentially.
Server storage connectivity revenues are expected to decline mid-teens percentage year over year. Broadband revenues are expected to decline high-single-digits year over year.
Broadcom expects wireless revenues to decline low-single-digit percentage year over year but increase more than 20% sequentially.
Industrial resale is expected to grow at a low single-digit percentage year over year.
Infrastructure software segment revenues are expected to be up mid-single digit percentage year over year.
Adjusted EBITDA is expected at approximately 65% of projected revenues in the fiscal fourth quarter.
Broadcom also expects gross margins to decrease approximately 80 bps sequentially, due to an unfavorable product mix.
Zacks Rank & Other Stocks to Consider
Broadcom currently has a Zacks Rank #2 (Buy).
Shares of Broadcom have gained 65% year to date compared with the Zacks Computer & Technology sector’s growth of 40.7%.
Salesforce CRM, Freshwork FRSH, and Splunk SPLK are some other top-ranked stocks that investors can consider in the broader sector. While Salesforce and Freshwork carries a Zacks Rank #2 Splunk sports Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Salesforce shares have gained 67% year to date. The long-term earnings growth rate is pegged at 21.47%.
Freshwork shares have gained 48.7% year to date. The long-term earnings growth rate is pegged at 30%.
Splunk shares have gained 40.9% year to date. The long-term earnings growth rate is pegged at 24.71%.
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s credited with a “watershed medical breakthrough” and is developing a bustling pipeline of other projects that could make a world of difference for patients suffering from diseases involving the liver, lungs, and blood. This is a timely investment that you can catch while it emerges from its bear market lows.
It could rival or surpass other recent Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock And 4 Runners UpSalesforce Inc. (CRM) : Free Stock Analysis Report
Splunk Inc. (SPLK) : Free Stock Analysis Report
Freshworks Inc. (FRSH) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
